Integrated versus Best of Breed Technology: Which Is Right for Your Family Office?

Uncovering Key Benefits of Integrated and Best of Breed Fintech Models

If you currently are – or ever have – evaluated family office technology, you’ve probably heard the terms “integrated” and “best of breed” used to describe various solutions in the marketplace. But despite their frequent usage, they’re often misinterpreted during the family office technology evaluation process. Unfortunately, this common misinterpretation can lead to flawed technology decisions that lack a proper understanding of the two options and their downstream implications.

On the bright side, if you’ve found yourself struggling to understand which tech stack may be the right fit for your family office or financial institution, you’re not alone.

To help potential fintech buyers better understand this technical terminology – and how it will impact their internal processes, data aggregation and reporting – we’ve put together some basic definitions of the two system architectures along with a few of their unique benefits.

Integrated Model

Integrated solutions typically refer to all-in-one systems. They tend to offer comprehensive functionality across multiple business disciplines while utilizing a single, underlying data warehouse that is managed and maintained by the technology vendor.

Said differently, integrated software means that most of the data is collected, processed and analyzed within one technology solution.

Sometimes referred to as enterprise systems, integrated solutions are designed as standalone platforms that can serve the back, middle and front office. As a result, family offices and financial institutions are able to consolidate accounting and investment data within a single database for end-client reporting purposes.

This type of solution is often sought after by firms who are looking to eliminate what are known as swivel chair processes, which is to say duplicative data entry across multiple, specialized systems. These systems may include a general ledger, a tax system, spreadsheets, an investment performance tool and a report writer – all of which have to be used together to produce holistic reporting both internally and for their end-clients. Oftentimes, these firms cite the data input and reconciliation processes as cumbersome and error prone, and thus are looking to minimize the number of systems and vendors that are required to do their job.

By implementing an integrated technology system that marries their accounting, tax, investment and client-facing teams, the firm essentially creates a single system of record, which in turn helps them streamline their reporting processes. But there are other benefits to consider too, including:

Automation, automation, automation

Using a single system for both accounting and investment detail typically allows you to leverage automated data entry. For instance, the Archway Platform^SM is built on a core general ledger, with each of the surrounding modules – or sub-ledgers – representing a specific business function. As users perform these non-accounting operations – like stock purchases, changing security prices, calculating fees, receiving private equity distributions, transferring cash and paying bills – the journal entries behind each of these operations are automatically generated and booked to the GL based on a series of user-defined accounting rules. This means accountants can eliminate the month-end process of copying balances – like dividends (qualified and non-qualified), income (taxable and non-taxable), unrealized gains/losses, custodial fees and cash – from their standalone portfolio management system into their standalone general ledger, which makes for effortless recordkeeping.

One support team for all

When multiple technologies or services are used within an organization, customer support can become messy. Lacking a centralized helpdesk or hotline, users have to reach out to each of the unique support teams and act as the liaison between vendors in the event a problem extends across multiple solutions. With an integrated solution, the client service team is knowledgeable on the full breadth of capabilities within the application taking the onus off of you to identify, triage and solve any issues yourself. Not sure a technology vendor’s support team is going to cut it? Check out these five questions to help you evaluate your technology firm’s client service team.

Consolidated data at your fingertips

Unless you’re planning to use in-house resources to spin up and maintain your own data warehouse fed by custom integrations with bespoke tools and services, multiple systems means multiple databases. And multiple databases means manual consolidation. On the flipside, an integrated fintech platform stores your accounting and investment data within a vendor-managed database. Using the Archway Platform as an example, this means that you can generate ad hoc data extracts and formatted reports like financial statements, net worth and cash summaries, performance and alternative investment metrics and target to actual allocation compliance on-demand – and, better yet, you can do it across all of your entities, accounts and investments.

No technical IT background required

If you do in fact have a dedicated IT team at your disposal to manage a reporting database, integrating multiple systems together may be a non-issue. But, if you don’t, integrated fintech solutions typically mean that the solution is developed, maintained and hosted by the technology vendor. As such, you nor your team need a technical IT background to begin using the platform in-house for your accounting, investment data aggregation and reporting needs. And you certainly won’t be responsible for future development and upgrades. That said, integrated solutions are multi-faceted and contain broad spectrums of functionality, so it’s important to understand your fintech vendor’s approach to product development and where they plan to focus their attention in the future before diving into a partnership with them.

Best of Breed Model

Best of breed intuitively means the best product of its type.

Instead of consolidating multiple business disciplines within a single application, the best of breed model takes an integrated solution and splits each of the business-specific functions into its own unique tool. Each of the tools perform a highly-specialized operation independent of the other tools. Examples of best of breed tools include alternative investment data aggregation systems, real estate management software, trust accounting platforms, performance reporting applications, expense management tools and document managers. As expected, this model features a significantly larger technology stack than an integrated technology solution as it includes more standalone systems.

Because each of these tools typically utilizes its own vendor-managed database, one of the most important considerations for this type of technology model is your organization’s ability to support a complex data warehouse. This type of model is best suited for firms that have the resources needed to establish and troubleshoot connections between the systems and the underlying database, normalize disparate, unstructured data from multiple systems and develop highly-customized reporting across thousands of data objects and fields.

However, harnessing the power of multiple best of breed solutions has clear benefits:

Flexibility, flexibility, flexibility

While integrated fintech solutions provide clear structure, a reporting warehouse receiving data from multiple best of breed systems provides unencumbered flexibility. Surprisingly, this degree of flexibility is often needed by firms with particularly rigid reporting objectives that are better served using a high-degree of firm-specific customizations. Using a homegrown database means firms can collect seemingly endless data points from various systems, which can then be computed and reported on according to their unabridged requirements.

Separation of duties (and risk)

For some wealth management firms, bifurcating responsibilities across multiple function-specific technologies is a requirement. For this reason, best of breed solutions are a natural fit as each functional team can select the technology system that most adeptly meets their needs. Furthermore, by extricating ancillary users from certain operational platforms, firms can limit their risk exposure and manage regulatory compliance with confidence.

Quick road to buy-in

Because integrated technology solutions are meant to be used by multiple teams, they tend to require interdepartmental agreement on the final purchase decision. In contrast, best of breed solutions are typically geared for a single purpose, making majority buy-in easer to achieve. One downside is that when teams begin making technology purchases independent of one another – and without consideration of one another – the technology stack can become disjointed and unwieldy. And a fragmented tech stack equals lost time, lost money and lost resources. That said, if your goal is to unify the whole of your best of breed systems, it’s important that each technology decision be made for the greater good of the overall tech stack to ensure that things like system connectivity, data flow, database organization and reporting outputs aren’t jeopardized or diminished in the long run.

It’s cheaper – wait, really?

Cost seems like a counterintuitive benefit when you’re talking about purchasing the best products in the market, but the rationale is simple: when implementing best of breed systems, firms can prioritize which system (or systems) should be implemented first, and incrementally add additional tools to their technology stack. This, in turn, spreads out the cost over a longer period of time. Keep in mind though, the cost of multiple systems will eventually add up. Although the upfront cost of an integrated solution may be more than a single best of breed tool, the long-term investment in integrated, multi-purpose technology may pose cost-savings over a multi-platform tech stack.

At SEI Family Office Services, we believe that our solutions should be both integrated and best of breed.

Why? Because we know that a powerful tool like the Archway Platform is made stronger by its connections with other solutions that help our clients be more efficient, insightful and confident in their roles.

So whether you choose to replace multiple systems with the Archway Platform and our supporting services, or whether you choose to use our solution as the hub of your technology stack, we’re here to help you build a family office technology ecosystem that befits your family office or financial institution.

Interested in learning more about how SEI’s Archway Platform can fit into your technology strategy? Watch the Archway Platform demo or schedule a call with a member of our team to start a conversation.